Compulsory licensing

27.4 The concept of a compulsory licence over patents arose from the historical requirement that a patent holder must ‘locally work’ a patented product or process. This meant that the patent holder was required to use or produce the patented invention within the country in which the patent was registered. Where a patent holder failed to ‘work’ the invention locally, the patent was subject to forfeiture.^[3]

27.5 Compulsory licences were developed as a less drastic means to ensure a patent was exploited.^[4] Compulsory licensing provisions were included in the first Commonwealth patents legislation in 1903.^[5]

Patents Act

27.6 Section 133(1) of the Patents Act provides that a person may apply to a prescribed court for a compulsory licence to work a patent after a period of three years has lapsed since the patent was granted.^[6] The court may make the order if it is satisfied that:

• the ‘reasonable requirements of the public’ with respect to the patented invention have not been satisfied;

• the patent holder has not given a satisfactory reason for failing to exploit the patent; and

• the applicant has attempted for a reasonable period to obtain a licence on reasonable terms and conditions, but without success.^[7]

27.7 Section 135 sets out the various circumstances in which the ‘reasonable requirements of the public’ with respect to a patented invention are to be taken not to have been satisfied. These are:

• A new or existing trade or industry in Australia is unfairly prejudiced, or the demand in Australia for the patented product^[8] is not reasonably met, because of the patent holder’s failure to: manufacture the whole or part of the patented product to an adequate extent, and supply it on reasonable terms; carry on a patented process to a reasonable extent; or grant licences on reasonable terms.

• A trade or industry in Australia is unfairly prejudiced by the conditions the patent holder attaches to the purchase, hire or use of a patented product or to the use or working of a patented process.

• The patented invention is not being worked in Australia on a commercial scale, but is capable of being worked in Australia.^[9]

27.8 Additional provisions apply where the patent in question is a ‘dependent patent’; that is, an invention that cannot be worked without infringing another patent.^[10]

27.9 A compulsory licence must not grant the exclusive right to work the patented invention.^[11] The patent holder is entitled to be paid for use of the patent at an agreed rate or, failing agreement, ‘such amount as is determined by a prescribed court to be just and reasonable having regard to the economic value of the licence’.^[12] A compulsory licence may be revoked where the circumstances that justified its grant have ceased to exist and are unlikely to recur, and the legitimate interests of the licensee are not likely to be adversely affected by the revocation.^[13]

27.10 As noted above, few, if any, compulsory licences have been granted under Australian patent law. A report of the House of Representatives Standing Committee on Industry, Science and Technology in 1992 stated that ‘no compulsory licences have been granted since Federation’.^[14] The ALRC is not aware of any compulsory licences having been granted since that date.

27.11 However, several commentators and submissions to this Inquiry have discussed the benefit of using the threat of compulsory licensing to induce patent holders to enter into voluntary licences for their patented inventions.^[15] In its review of similar provisions in the Patents Act 1952 (Cth), the Industrial Property Advisory Committee (IPAC) commented that:

there is anecdotal evidence that compulsory licences have an impact on licence negotiations, notably between foreign rights’ owners and potential users of patents in Australia. It is claimed that the threat of acquiring a compulsory licence often encourages parties to reach agreement where they otherwise would not have.^[16]

27.12 However, AusBiotech Ltd submitted that there is no solid evidence that the mere existence of the compulsory licence provisions encourages patent holders to negotiate with potential licensees.^[17] The Centre for Law and Genetics commented that the threat of such action is likely to be largely non-existent given the under-utilisation of the compulsory licensing provisions in Australia. The Centre noted that the inequality in bargaining power between many companies reinforces this problem.^[18]

Relationship to Crown use

27.13 As discussed in Chapter 26, the Patents Act permits the Commonwealth or a State, or a person authorised by the Commonwealth or a State, to exploit a patented invention without infringing the patent, provided that exploitation is ‘for the services of the Commonwealth or of a State’. The permitted exploitation by the Crown expressly includes exploitation by an authority of the Commonwealth or of a State.^[19]

27.14 A public organisation seeking access to a patented genetic material or technology may have the options of invoking the Crown use provisions or applying for a compulsory licence. In some circumstances, there may be an advantage in exercising Crown use rather than seeking a compulsory licence. For example, a healthcare authority could avoid the costs and delay involved in the negotiations and court proceedings required to obtain a compulsory licence by asserting Crown use. However, the advantage of a compulsory licence is that the remuneration must be settled before the licensee uses the patented invention, providing greater certainty as to the cost of such compulsory use.

Other jurisdictions

27.15 Compulsory licences have been granted on a diverse range of grounds in other jurisdictions, including to address local non-working and lack of appropriate supply; to remedy a refusal to license the patented invention; to remedy anti-competitive conduct; in the public interest; to facilitate the working of dependent patents; and to facilitate access to patented medicines.^[20]

27.16 The Patents Act 1977 (UK) outlines the circumstances in which a compulsory licence may be granted for a patented invention in the United Kingdom. These circumstances are similar to those specified in s 135 of the Australian Patents Act, but are described more clearly. A compulsory licence may be granted for a patent held by a ‘WTO proprietor’^[21] in the following circumstances:

• in the case of product patents, a demand in the United Kingdom for that product is not being met on reasonable terms;

• the patent holder refuses to grant a licence on reasonable terms, resulting in: prevention or hindrance of the exploitation in the United Kingdom of any other patented invention that involves an important technical advance of considerable economic significance in relation to the invention for which the patent concerned was granted; or unfair prejudice to the establishment or development of commercial or industrial activities in the United Kingdom; or

• the conditions imposed by the patent holder on the grant of a licence, or the disposal or use of the patented invention, unfairly prejudice: the manufacture, use or disposal of materials not protected by the patent; or the establishment or development of commercial or industrial activities in the United Kingdom.^[22]

27.17 In New Zealand, a compulsory licence may be granted where a domestic market for the patented invention is not being supplied, or is not being supplied on reasonable terms.^[23] In Canada, a compulsory licence may be granted to remedy an abuse of the exclusive rights contained in a patent;^[24] or to remedy an anti-competitive exercise of a patent.^[25] In Japan, a compulsory licence may be granted on non-working, dependency, and public interest grounds.^[26]

27.18 Few compulsory licences appear to have been granted in other jurisdictions. In a 1998 report to the Council for Trade-Related Aspects of Intellectual Property Rights, the United Kingdom stated that only two compulsory licences had been issued under the Patents Act 1977 (UK), and none had been granted since 1993.^[27] Similarly, in 1997 New Zealand and Japan reported that no compulsory licences had been granted in their jurisdictions since 1993.^[28]

International framework

The TRIPS Agreement

27.19 Article 31 of the Agreement on Trade-Related Aspects of Intellectual Property Rights 1994 (TRIPS Agreement) deals with the use of patented inventions without the authorisation of the patent holder. This includes Crown use and use pursuant to the grant of a compulsory licence.^[29]

27.20 Article 31 does not specify or limit the grounds upon which a compulsory licence may be granted. However, it outlines the procedures that member States must follow when they grant a licence, and specifies certain procedural requirements that must be respected.^[30] For example, each case must be considered on its individual merits; the applicant must have attempted to negotiate a licence from the patent holder for a reasonable period, except in specified circumstances; and the right holder must be paid adequate remuneration in the circumstances of each case, taking into account the economic value of the authorisation.

Australia–United States Free Trade Agreement

27.21 The Australia–United States Free Trade Agreement (AUSFTA) appears to narrow the circumstances in which either party may permit the unauthorised use of a patented invention. The AUSFTA provides that each party shall not permit the use^[31] of the subject matter of a patent without the patent holder’s consent except in the following circumstances:

• to remedy a practice determined after judicial or administrative process to be anti-competitive under the party’s laws relating to prevention of anti-competitive practices; or

• in the case of public non-commercial use or national emergency or the circumstances of extreme urgency, subject to specified circumstances.^[32]

27.22 On its face, the AUSFTA appears to exclude the grant of a compulsory licence where the ‘reasonable requirements of the public’ have not been satisfied in ways that are not related to competition within a market, and do not involve public non-commercial use. However, the ALRC understands that the Australian Government does not intend to amend the existing test in the light of the AUSFTA.